ALAMEDA, Calif. — Two years after voters north of San Francisco approved a sales tax to finance a new commuter rail line, the start of construction is in sight and the Sonoma Marin Area Rail Transit District prepares for its first bond issue.
Proposals for underwriters are due Friday, said David Heath, SMART’s chief financial officer, as the district prepares for its bond market debut in January.
“Right now rates are favorable and so is the construction climate,” he said. The district is looking to raise about $200 million from its debut debt offering.
Voters in the two counties approved a 2008 ballot measure, authorizing a quarter-cent sales tax for 20 years to build and operate the rail system.
Plans call for a commuter train line from Larkspur in Marin County 70 miles north to Cloverdale in Marin County, with a parallel bicycle path.
The route shadows the frequently congested U.S. 101 freeway, using an existing but disused and rundown freight-rail corridor that will have to be reconstructed to accommodate passenger trains.
Since the election, the agency has funded preliminary engineering on a pay-as-you-go basis with the help of some state transportation grants.
SMART is planning to commence construction in the summer of 2011 after taking bids in the spring. That’s a key factor in scheduling the bond sale, according to Heath.
“We’re ready to begin construction,” he said. “We want them to start building; we’re going to need resources to provide upfront for that.”
The district recently selected Orrick, Herrington & Sutcliffe LLP as bond counsel and Fulbright & Jaworski LLP as disclosure counsel.
KNN Public Finance has served as SMART’s financial adviser since before the 2008 election.
Since that election, the district has faced doubts about whether its sales-tax based financing plan can provide enough resources to complete the entire project.
During 2008, the last full year for which statistics are available from the state Board of Equalization, taxable sales in the two counties declined more than 5% from the previous year.
In September, SMART management gave the board a progress report on its efforts to get capital funding for the project, which carries an estimated $540 million construction cost.
General manager Lillian Hames told the board that $400 million in funding is secured, including the full use of the district’s sales tax bonding capacity over time; that another $50 million to $75 million is pending from federal transportation reauthorization; and that SMART is exploring another $384 million in potential funding
from sources such as the federal TIGER II program and Small Starts program.
SMART received some good news Oct. 25, when Hames announced a preliminary agreement on a deal to buy trains for the system.
Sumitomo Corporation of America has bid to provide nine two-car trains for the system for $56.9 million, about $23 million below the district’s preliminary planning estimates.
Heath said SMART is planning to issue bonds on a tax-exempt basis.
The district hasn’t categorically ruled out the use of taxable Build America Bonds, he said, but in addition to the uncertainty over what Congress will do with the program before its Dec. 31 sunset, SMART’s debt structure argues in favor of a tax-exempt issuance.
Because the sales tax backing the debt expires in 18 years, that is the outer limit for bond maturities.
Most of the financial benefits from issuing BABs are derived from longer amortizations, Heath said.